The Inefficient Job Market

Today’s job market is noisy, deceptive and highly inefficient – many would describe it as illiquid. Employers are not able to “reach” qualified and available candidates to keep up with their hiring demands. As a result, employers pay large sums of money to Recruiters and Marketing Agencies (Job Boards) in an attempt to bridge these gaps and bring more liquidity to an inefficient market.

This inefficient process of hiring shares a historical analogue with the modern stock market and can give us a peek into what the future holds for recruiting.
Hiring inefficiency can be measured by the length of time it takes to identify and source the candidate (Time-to-Hire) and by how much it costs to pay for the candidate (Compensation).

For example, hiring someone with the skills to manipulate and segment large data sets (Data Science Engineer) is vastly more difficult than sourcing someone who can refill a fryer of frozen french fries (fast food cook). (No offense to fast food cooks – I worked a stint as a fast food cook at Captain D’s while in high school.)

These inefficiencies exist as a simple function of scarcity. There are fewer people with data science skills than there are people with the skills to cook fast food.
The inefficiencies are compounded when you include geography (Location) and move up the skills and experience stack (Skills) for the job role.

These inefficiencies don’t only exist with Data Scientists but with any role that requires specific skills or experience.

To bridge these inefficiencies Recruiters deploy labor intensive efforts (often manual processes) – to bridge these gaps and match Candidates with the right Job. This manual labor is expensive since the work is often unique to each transaction and executed by highly specialized market-makers (Recruiters). Like anything specialized – skilled labor is expensive and difficult to scale.

Buttonwood Agreement
In 1792, 24 stockbrokers signed an agreement to fairly trade stocks amongst themselves and eliminate the need for an auctioneer – in exchange for a fixed commission rate.
The purpose of the Buttonwood Agreement was to accelerate the process of buying and selling stocks. The stockbrokers collectively replaced the auctioneer and brought more liquidity (efficiency) to the exchange.

Even today, the broker model brings liquidity to the stock exchange by bridging buyers and sellers (Scarcity), and matching them based on stock price and # of shares. But, technology has morphed the broker model from being a human-intervention into being a computer-driven transaction.

Today, technology has replaced virtually every aspect of the stockbroker’s job. Stockbrokers are no longer directly required for buying and selling stocks (only indirectly through web site services like eTrade, Schwab, etc). Computers manage the entire process and optimize to the fraction of a penny. Technology has squeezed out every ounce of inefficiency when it comes to trading stocks. Other inefficiencies have since arisen in other aspects of trading (Active vs Passive), but the market-maker role and the liqudity that stockbrokers brought to the stock market have long since been replaced by automation and computers.

Modern Recruiting
Today, in the market of skilled labor and technology talent, Recruiters play a similar role that the now antiquated stockbrokers played in the stock market. Recruiters bring liquidity and efficiency to the market in the same way that stockbrokers did. And, like stockbrokers, recuiters play both sides of the transaction and charge a fee for their services.

In comparison to the original stockbrokers of the Buttonwood Agreement who agreed to never charge more than .25% commission for the transaction, Recruiter’s leverage the laws of supply and demand and often charge 10-35%+ for the transaction. Recruiter’s are doing a good job of exploiting the inefficiencies of this market – and because the market is SO INEFFICIENT employers are willing to pay the higher fees.

Information Breaks the Model
But what if there was a better way?

What if there was a way to leverage automation to bring liquidity to an efficient market?

What if we automated how Employers and Candidates “found each other” with a marketplace model that was vastly less labor intensive and thus less expensive than the cost of a manually, curated transaction?

How could we bring more liquidity and efficiency to the job market without increasing the labor and costs associated with traditional recruiting models?

We believe that market efficiency increases with information. The more information available about the Job and the Candidate – the more efficient the market. Not only does more information increase transparency – it creates better data for humans to search and filter and better data for the machines to learn from.

Today, Employer’s obfuscate compensation and job details in hopes of saving a few points of compensation. Likewise, Candidates mislead employers about their background, performance and work history in an attempt to not be misjudged or criticized. This lack of information on both sides of the marketplace creates tremendous friction in the hiring process and forces both parties to waste multiple communication cycles (email, text, phone and interviews) to uncover a few salient details that should have been presented upfront.

Both parties can compress the Time-to-Hire by being more transparent about Compensation expectations, Compensation offerings, Location, Timing, etc. Withholding key details in hopes of optimizing negotiations – both parties are contributing the market inefficiencies. It shouldn’t take multiple cycles to discover compensation details – nor should the Employer be surprised during the 3rd interview of the Candidate’s compensation expectations.

A job marketplace with more information will only help both parties and accelerate the hiring process.

Until The Machines
It seems inevitable that like the stockbrokers of old, recruiters will slowly be replaced by automation, artificial intelligence and algorithms that will provide all of the sourcing, matching and haggling skills necessary to fill a job.

Of course, it is going to take many years for this to play out since technology isn’t quite ready to replace human intuition but we believe that technology will advance recruiting for the better. More automation means faster Time-to-Hire and better candidate experiences. An efficient marketplace also gives both employers and candidates more control of their hiring experience – in an environment with more information for everyone to make better decisions.

Technology will ultimately eliminate the mundane tasks associated with sourcing good talent and will enable us all to focus on the human elements of recruiting – at least until the machines inevitably take over.